Philip Morris International and Altria have called off discussions to reunite the tobacco giants — a planned merger of equals that received a chilly reception from investors.
The combined company would have been a $200 billion behemoth that dwarfed the market value of its next-largest rival, British American Tobacco, by about $120 billion and give Altria access to Philip Morris' international markets. But a lot had changed in the decade since the two split and cigarette smoking was losing favor among consumers.
Altria's investments in vaping and cannabis, which looked like smart bets when they were first made, are now being dragged down by regulatory challenges.
The Marlboro maker's $12.8 billion investment in e-cigarette company Juul in December has soured as regulators including from U.S. and China ban its popular fruit-flavored pods from the market. Walmart, the nation's largest retailer, said last week it was going to stop carrying e-cigarettes altogether amid heightened regulatory scrutiny.
"It is evident that significant investor pushback and the reality of holding a larger presence in the U.S. market fraught with risk around the FDA and weak volumes lead to the decision," analysts at Stifel wrote in a note to investors shortly after the news was announced.
Philip Morris' stock jumped more than 6% Wednesday, bringing its market value to about $118 billion. Shares of Altria initially gained but were down 2.4% Wednesday afternoon, valuing the company at around $74 billion.
The companies, which said in August they would discuss a possible all-stock merger of equals, now say they will focus on jointly launching IQOS, a heated tobacco product, in the United States.
"After much deliberation, the companies have agreed to focus on launching IQOS in the U.S. as part of their mutual interest to achieve a smoke-free future," PMI CEO Andre Calantzopoulos said.
The IQOS device heats tobacco to release flavorful nicotine-containing tobacco vapor but without burning the tobacco.
Altria recently made investments that indicate plans to diversify beyond tobacco products. Its investment in Juul last year gave it a 35% stake in e-cigarette company. It's also invested in Canadian pot company Cronos.
An outbreak of a mysterious lung disease has hit the vaping industry. In a separate announcement Wednesday, embattled Juul said former Altria executive K.C. Crosthwaite will replace Kevin Burns as CEO. As Altria's chief growth officer, Crosthwaite oversaw the company's expansion into heated tobacco products.
Altria spun PMI off in 2008, remaining focused mostly in the U.S. through its Marlboro cigarettes, while PMI has focused on selling cigarettes overseas.
The companies said IQOS is the only heated tobacco product with premarket authorization from the Food and Drug Administration for sale in the U.S. PMI estimates that about 8 million adult smokers around the world have already used the product. It currently sells IQOS in 48 markets including Canada, the United Kingdom, Japan and Korea.
CNBC's Angelica LaVito contributed to this article.